Cryptoasset firms marketing to UK consumers must get ready for the financial promotions regime

The Financial Conduct Authority (FCA) published a letter to Cryptoasset firms on the 4 July confirming that qualifying cryptoassets will now fall within the scope of the financial promotions regime.

From the 8 October 2023, all firms marketing cryptoassets to UK consumers, including firms based overseas, must comply with the financial promotions regime.

What is a Financial Promotion?

A financial promotion is a broadly defined term, with no technological boundaries. A financial promotion is defined as: “an invitation or inducement to engage in investment activity or to engage in a claims management activity that is communicated in the course of business”.

Evidently, this captures a broad range of advertising mediums, such as press, newspaper, website, digital banners and billboards.

A financial promotion communicated from outside the UK, which is capable of having an effect in the UK (regardless of whether it is solely targeted at UK consumers) fall within the regime.

How can a cryptoasset firm legally communicate financial promotions to UK consumers?

From the 8 October 2023, there will be four routes to lawfully communications cryptoasset promotions to UK consumers:

1. Communication of the promotion by an authorised person;
2. Approval of the promotion by an authorised person;
3. Communication of the promotion by a cryptoasset business registered with the FCA under the money laundering regulations; or
4. Compliance of the promotion with an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005.

Failure to follow one of the above routes will result in the promotion being communicated in breach of section 21 of the Financial Services and Markets Act 2000, which is a criminal offence, punishable by up to 2 years’ imprisonment, an unlimited fine, or both.

The FCA has commented that it will take “robust action against persons illegally promoting to UK consumers. This may include, but is not limited to, placing firms on our warning list, taking steps to remove or block any illegal financial promotions… and enforcement action.”

Financial promotions being communicated through routes 1-3 above must comply with the FCA’s rules on cryptoasset financial promotions, which are set out in the FCA’s Policy Statement PS23/6.

How can firms prepare for the 8 October 2023?

The FCA’s expectations are clear: all cryptoasset firms marketing to UK consumers must get read for the financial promotions regime. Here are some practical tips to help firms get ready:

1. Consider which of the four legal routes your firm will use to make its financial promotions and how the FCA rules will be met.
2. Review what changes needs to be made to internal systems, policies and operations to ensure compliance with the chosen lawful route.
3. Consider how your firm will deal with UK consumers if it is unable to communicate financial promotions to them. Any changes to the services provided to UK consumers must be communicated clearly and consumers must be given adequate time to respond to any changes before they come into effect.
4. If firms decide to no longer provide services to UK consumers, the FCA expects them to have orderly wind-down plans in place to minimise any impact on UK consumers. The FCA has prepared a guide on wind-down planning, which may be useful.

The FCA has commented that route 3 (registration under the money laundering regulations) is likely to be the most popular route chosen by cryptoasset firms. Firms applying for registration through this route should expect to be asked about:

1. The extent of cryptoasset advertising;
2. Benefits received by the cryptoasset service;
3. How relevant the cryptoasset business is to the rest of the firm’s business;
4. How frequently the firm carries on the cryptoasset service; and
5. Where the cryptoasset firm carries on its business and whether it has a head office or registered office in the UK.

Firms applying for registration must also ensure that:

1. Applications are complete and accurate;
2. Information is not omitted;
3. Final documents are provided (where relevant);
4. Legal or compliance advice is sought on the application.

The FCA has published a useful guide on good and poor quality applications under the money laundering regulations.

If you have any questions, please do contact us.